Bye bye nanny state, hello Egypt/Jordan style protests? Kuwait to possibly scratch $16 billion worth of subsidies
The Cabinet of Kuwait has approved a decision to set up a high-level ministerial committee to start reviewing subsidies on commodities and services, a newspaper reported on Sunday.
The committee will be headed by the Finance Ministry and its main objective is “to rationalize” state subsidies estimated at 4.6 billion dinars ($16.2 billion), or around 22 percent of the budget, Al-Qabas said, citing cabinet sources.
The aim is also to make sure the subsidies reach those who actually need them, it said.
The cabinet’s new move comes less than two weeks after the government bluntly told parliament that the generous cradle-to-grave welfare system “can not continue” and must be revised. A majority of MPs have criticized the announcement.
According to government statistics, around $11.8 billion of the subsidize are spent on supporting the prices of electricity, water and fuel, Al-Qabas said.
The subsidies are offered to Kuwait’s 1.22 million citizens and 2.7 million foreign residents.
The decision to form the panel came at the request of Finance Minister Sheikh Salem Abdulaziz Al-Sabah, a former central bank governor who resigned in February last year in protest against the steep rise in public spending.
At the time of his resignation, Sheikh Salem said public spending had increased to unprecedented and unsustainably high levels, restricting the central bank’s ability to achieve fiscal and monetary stability.
Buoyed by 13 consecutive years of large budget surpluses thanks to high oil prices, spending has tripled over the past seven years from just $23 billion to over $70 billion, mostly on wages, subsidies and grants, according to official figures.
In its four-year development program submitted to parliament late last month, the government warned that if the welfare system remains, the OPEC nation will start facing “real” budget deficits from 2021 and is expected to accumulate shortfalls of up to 414 billion dinars (around $1.46 trillion) by 2035.
Fuel prices have not changed for the past 15 years, while power is offered to citizens and the 2.7 million foreign residents at less than five percent of the cost, according to government figures.
The International Monetary Fund urged Kuwait last month to contain public spending to avoid risks from a drop in the price of crude oil which accounts for 94 percent of state revenues.
Kuwait pumps around 3.0 million barrels per day.